"Decision Weights", Framing Effect, and Prospect Theory

Course video 40 of 49

Many of our decisions involve uncertainty or imperfect knowledge about how our choices lead to outcomes. The important aspect of uncertainty most commonly considered by economists and neuroeconomists is risk, which refers to situations in which we know the probabilities of possible outcomes. For example, if you play roulette in Monte Carlo, you are making a decision under risk since you know the probability of winning and thus how much you should expect to lose. Here I will introduce a neuroeconomic approach to studying decisions under risk and an anticipatory affect model suggesting that the balance of activity in the set brain areas (insular cortex and nucleus accumbens) promotes either approach toward or avoidance of risk. Additionally, Dr. Brian Knutson (Stanford University) provides his comments on the functional role of the nucleus accumbens in a guest lecture.

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